The present invention relates generally to the automatic generation of legal documents and, more particularly, to the automatic generation of legal documents for institutional and commercial loans.
Commercial loan documents contain many contract provisions. Each provision can contain several variables. A provision requiring a borrower to maintain casualty insurance coverage, for example, may include monetary thresholds as well as clauses providing for how the distribution of the insurance proceeds will occur in the event of a casualty. A standard clause included in a lender""s loan document might provide that, in the event of a casualty covered by the insurance policy, the proceeds are to be paid to the lender who then disburses the proceeds to contractors who are rebuilding a structure, i.e., the collateral for a loan. An alternative version of the insurance provision could provide that the proceeds will be paid to the borrower for the borrower to disburse to the contractors.
In accordance with existing techniques, if a borrower does not wish to accept a standard clause, the borrower or borrower""s counsel typically communicates with the lender or lender""s counsel and requests changes to the loan documents. If the lender is willing to make the changes, the lender""s counsel or the borrower""s counsel proposes new terms modifying or replacing the standard clause. The process may be repeated several times. The same process is often repeated for numerous other provisions. Because of the human interaction that is involved, the time spent in the negotiation and drafting of the loan documents may be appreciable and the process can result in significant legal fees.
Lenders typically analyze and price institutional and commercial loans based upon their standard loan documents before negotiations over the loan documents begin in earnest. Lenders do not generally re-price the loans based upon these subsequent negotiations.
Therefore, extended loan negotiations, involving numerous contractual changes, can adversely impact the lender""s profit margin. The lender may be less prone to negotiate changes, or may raise the original charge for all loans, to account for such back-end costs, thereby, raising the borrower""s costs.
Some provisions in loan documents may have a lesser importance to the lender than other provisions. Although willing to modify or remove the less important provision, a lender may use the provision as a xe2x80x9cbargaining chipxe2x80x9d for retaining provisions which are more favorable and significant to the lender. This also results in expenditure of time and incurs legal expenses relating to the negotiation of provisions that may not be as important to the parties as other provisions.
An effective automatic method of loan negotiation and loan document generation, therefore, is very desirable. Some automated processing systems are found in pre-existing prior art.
A computerized system for matching potential borrowers with available loans, for example, is disclosed in U.S. Pat. 5,940,812. The system matches available loans to potential borrowers and automatically generates a loan application form via the global telecommunications network, e.g. the Internet. The attributes of the available loans are pre-specified by the lender. A borrower, using the system, disclosed in the patent, must enter data corresponding to pre-specified designations of borrower attributes.
U.S. Pat. No. 5,995,947 discloses a method for trading loans in real time by placing loan applications up for bid by a plurality of potential lenders.
U.S. Pat. No. 5,966,699 relates to a computer system for conducting an electronic loan auction over a computer network.
U.S. Pat. No. 5,930,776 discloses a computer automated system for automatically evaluating a potential borrower""s credit and processing the loan application.
In accordance with the present invention, a method and system is provided for automatically generating customized legal documents, particularly for institutional commercial loans, from a database of loan provisions including standard clauses and alternate optional clauses for each of the standard clauses.
According to one aspect of the invention, the prospective borrower selects either standard clause or from one or more optional clauses for different loan provisions.
In a preferred embodiment of the invention, a value is assigned to each of the optional clauses and the cost of the loan is determined and based on the clauses selected by the prospective borrower.
The inventive method preferably utilizes a computerized data processing system with a database of loan provisions. The loan provisions include standard clauses and one or more optional clauses associated with each one of the standard clauses. Each optional clause has an associated lender ranking value. A borrower selects either the standard clause or one of the associated optional clauses for each of the negotiable loan provisions. The borrower assigns a borrower ranking value to each selected optional clause. The borrower ranking value is then compared with an associated lender ranking value for each selected optional clause for determining whether the standard clauses will be retained or replaced by the selected optional clauses. The selected optional clauses having an assigned borrower ranking value which equals or exceeds the lender ranking value will replace the associated standard clause. If the lender ranking value exceeds the borrower ranking value, the standard clause is retained. The loan document is then generated with loan provisions composed of each of the accepted selected optional clauses and each of the retained standard clauses.
It is thus an object of the present invention to provide a method and system for automatically generating legal documents for loan transactions which incorporate desired provisions and eliminate substantial time and cost in negotiating and drafting the loan documents.
The various features of novelty which characterize the invention are pointed out with particularity in the claims annexed to and forming a part of this disclosure. For a better understanding of the invention, its operating advantages and specific objects attained by its uses, reference is made to the accompanying drawings and descriptive matter in which a preferred embodiment of the invention is illustrated.